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TransDigm Group (TDG): Company Profile, Stock Price, News, Rankings

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TransDigm Group

transdigm group

Good day and thank you for standing by. Welcome to Q2 twenty twenty five TransDigm Group Incorporated Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Jamie Stieman, Director of Investor Relations. Please go ahead.

Thank you, and welcome to TransDigm's fiscal twenty twenty five second quarter earnings conference call. Presenting on the call this morning are TransDigm's President and Chief Executive Officer, Kevin Stein Co Chief Operating Officer, Mike Lisman and Chief Financial Officer, Sarah Winn. Also present for the call today is our Co Chief Operating Officer, Joel Reif. Please visit our website at transdigm.com to obtain a supplemental slide deck and call replay information. Before we begin, the company would like to remind you that statements made during this call, which are not historical in fact, are forward looking statements.

For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward looking statements, please refer to the company's latest filings with the SEC available through the Investors section of our website or at sec.gov. The company would also like to advise you that during the course of the call, we will be referring to EBITDA, specifically EBITDA as defined, adjusted net income, and adjusted earnings per share, all of which are non GAAP financial measures. Please see the tables and related footnotes in the earnings release for a presentation of the most directly comparable GAAP measures and applicable reconciliation. I will now turn the call over to Kevin.

Good morning. Thanks for calling in today. First, I'll start off with a brief overview of our recent organizational announcement, then the usual quick overview of our strategy, a few comments about the quarter, and discuss our fiscal 'twenty five outlook. Then Mike and Sarah will give additional color on the quarter. As you may have seen, we announced this morning that I will retire at the end of TransDigm's twenty twenty five fiscal year.

Beyond that, I will continue to serve as an advisor to the company through 03/31/2026 to help facilitate the leadership transition. Additionally, I will continue to serve as a member of TransDigm's Board of Directors. It has been a privilege to lead TransDigm as CEO these past seven years. TransDigm is an exceptional company, and I immensely enjoyed the opportunity to see it grow and generate value for its shareholders. I look forward to finishing out my last few months as CEO and continuing my involvement with TransDigm as a board member.

I will be leaving TransDigm in very good hands as Mike Lisman has been elected by the Board of Directors to be our new CEO effective 10/01/2025. At that time, Mike will become responsible for all operational and financial matters. All our operating executives as well as the CFO will report to Mike. This succession planning has been in the works for some time, and we were very excited to promote an internally developed long tenured employee into the position of CEO. Mike has served as TransDigm's co COO since May of twenty twenty three.

Prior to that, he held several positions across the company, including that of CFO and Executive Vice President, with direct operational oversight for a number of our operating units. Mike also previously held role as the lead of TransDigm's M and A team and as a business unit manager at our Aerofluid Products operating unit. Mike understands our unique culture and process and embraces our long term value generating strategy. He has contributed substantially to the value that TransDigm has created over his tenure. Mike is an excellent choice to lead TransDigm.

I am confident he will do an outstanding job and continue to create the kind of value that has been the long term hallmark of TransDigm. Now moving on to the business of today. To reiterate, we believe we are unique in the industry in both the consistency of our strategy in both good times and bad as well as our steady focus on intrinsic shareholder value creation through all phases of the aerospace cycle. To summarize, here are some of the reasons why we believe this. About 90% of our net sales are generated by unique proprietary products.

Most of our EBITDA comes from aftermarket revenues, which generally have significantly higher margins and over any extended period have typically provided relative stability in the downturns. We follow a consistent long term strategy specifically. First, we own and operate proprietary aerospace businesses with significant aftermarket content. Second, we utilize a simple, well proven value based operating methodology. Third, we have a decentralized organizational structure and unique compensation system closely aligned with shareholders.

Fourth, we acquire businesses that fit this strategy and where we see a clear path to PE like returns. And lastly, our capital structure and allocation are a key part of our value creation methodology. Our long term goal is to give our shareholders private equity like returns with the liquidity of a public market. To do this, we stay focused on both the details of value creation as well as careful allocation of our capital. As you saw from our earnings release, we had a strong Q2.

During the quarter, we saw a healthy growth in the revenues for both our commercial aftermarket and defense market channels. Commercial OEM revenues this quarter were about flat with the prior year. Sequentially, both revenues and bookings improved in all three of our major market channels. Commercial aerospace market trends remain favorable. It's currently a very dynamic macroeconomic environment, but to this point, airline schedules continue to be fairly stable.

In the commercial OEM market, there is still much progress to be made for OEM rates, and our results continue to be adversely affected by OEM performance. Airline demand for new aircraft remains high, and the OEM backlog remains considerable. OEMs are working to increase aircraft production to meet this demand. Boeing aircraft production rates are still well below pre pandemic levels, though, and the nearly two month long machinist strike last fall further delayed the recovery. However, there has been steady progress in Boeing's production rates, which is a positive sign.

Our EBITDA as defined margin was 54% in the quarter. Contributing to the strong Q2 margin is the continued strength in our commercial aftermarket, along with diligent focus on our operating strategy, which is allowing margin performance to expand across all segments. Additionally, we ended the quarter with a strong cash balance of over $2,400,000,000 We expect to steadily generate significant additional cash throughout the remainder of 2025. Next, an update on our capital allocation activities and priorities. During Q2, we opportunistically deployed just over $50,000,000 of capital via open market repurchases of our common stock.

This equates to approximately 40,000 of our shares at an average price of $12.50 dollars per share. Additionally, after the quarter end, we deployed about $130,000,000 of capital in early April to repurchase just over 100,000 of our shares at an average price of $12.41 dollars per share. We view these purchases like any other capital investment and expect that they will meet or exceed our long term return objectives. Regarding the current M and A activities and pipeline, we continue to actively look for M

and A opportunities that fit our model. As we look out over the immediate time horizon, we continue to see an expanding pipeline of potential M

and A targets, and we do not see this environment slowing in the near term. As usual, the potential targets are mostly in the small and mid sized range, and TransDigm remains disciplined in our approach to M and A. I cannot predict or comment on possible closings, but we remain confident that there is a long runway for acquisitions that fit our portfolio. The capital allocation priorities of TransDigm are unchanged. Our first priority is to reinvest in our businesses.

Second, do accretive, disciplined M and A. And third, return capital to our shareholders via share purchases or dividends. A fourth option, paying down debt, seems unlikely at this time, though we do still take this into consideration. We are continually evaluating all of our capital allocation options, but both M and A and capital markets are difficult to predict. As always, we continue to closely monitor the capital markets and remain opportunistic.

As mentioned earlier, we ended the quarter with a sizable cash balance of over $2,400,000,000 We have significant liquidity and financial flexibility to meet any likely range of capital requirements or other opportunities in the readily foreseeable future. Moving to our outlook for fiscal 'twenty five. The guidance assumes no additional acquisitions or divestitures and is based on current expectations for continued performance in our primary commercial end markets throughout fiscal 'twenty five. Although we saw strong second quarter results, we are not changing our full year financial guidance for fiscal twenty twenty five at this time. This may be conservative, and time will tell.

The guidance incorporates the impact of recently enacted U. S. And non U. S. Tariffs.

Based upon what we know today, we do not anticipate a material headwind from tariffs that we are unable to mitigate. As you know, TransDigm is largely a domestic manufacturer with limited exposure to low cost country sources. The full year guidance assumes no significant macroeconomic impacts or other factors such as an economic recession that could affect our business. Additionally, we do not know what the indirect impact of tariffs could have on other parts of the aerospace supply chain, including OEM production rates. Our guidance can be found on slide six in the presentation, and I will also discuss here.

The midpoint of our fiscal 'twenty five revenue guidance is $8,850,000,000 or up approximately 11%. In regards to the market channel growth rate assumptions that this revenue guidance is based on for the commercial OEM market and defense market, we are updating the full year growth rate assumptions to reflect second quarter results and current expectations for the remainder of fiscal 'twenty five. For commercial OEM, we now expect revenue growth in the low single digit to mid single digit percentage range. The previous commercial OEM revenue guidance was mid single digit percentage range. For defense, we now expect revenue growth in the high single digit to low double digit percentage range.

The previous defense revenue guidance was high single digit percentage range. We are not updating the full year market channel growth rate assumptions for commercial aftermarket as underlying market fundamentals have not meaningfully changed. Commercial aftermarket revenue guidance is still based on our previously issued market channel growth rate assumption of revenue growth in the high single digit to low double digit percentage range. The midpoint of fiscal twenty twenty five EBITDA as defined guidance is $4,685,000,000 or up approximately 12%, with an expected margin of around 52.9%. This guidance includes about an additional 70 basis points of margin dilution from recent acquisitions compared to fiscal 'twenty four.

While we had a strong EBITDA margin result in the second quarter of fiscal year 'twenty five, margins can be lumpy and may fluctuate over the next couple of quarters. Again, this could be conservative. The midpoint of our adjusted EPS is expected to be $36.47 or up approximately 7%. Sarah will discuss in more detail shortly the factors impacting EPS along with some other fiscal 'twenty five financial assumptions and updates. As the current environment is very dynamic, we will continue to evaluate our guidance and closely monitor our primary end markets as the year progresses.

We believe we are as well positioned as we can be for the remainder of fiscal twenty twenty five. As usual, we will continue to closely watch how the aerospace and capital markets continue to develop and react accordingly. Let me conclude by stating that I'm very pleased with the company's performance this quarter.

remain focused on our value drivers, cost structure and operational excellence. We look forward to the second half of fiscal 'twenty five and providing the value you have come to expect from us. Now let me hand it over to Mike Lisman, our TransDigm Group Co COO, to review our recent performance and a few other items.

Good morning, everyone. I'll start with our typical review of results by key market

category. For the remainder of the call, I'll provide commentary on a pro form a basis compared to the prior year period in 2024. That is assuming we own the same mix of businesses in both periods. In the commercial market, typically makes up close to 65% of our revenue, we'll split our discussion into OEM and aftermarket. Our total commercial OEM revenue was about flat in q two compared with the prior year period.

Sequentially, total commercial OEM revenues grew by about 17% compared to q one. Bookings in the quarter were just slightly down compared to the same prior year period with the softness driven by our bizjet and helicopter submarkets. The bookings levels for OEM commercial transport were roughly in line with our expectations prior to the Boeing strike, with the growth rate in the low single digits for the quarter, giving us confidence that the commercial OEM market is recovering from the disruptions of approximately two quarters ago. OEM supply chain and labor challenges persist, but continue to improve. Despite government actions regarding tariffs and concerns around a potentially weakening economic environment, aircraft production backlogs are large enough that at this time, chains remain the primary bottleneck in the OEM production ramp up.

We remain encouraged by the progress of the seven thirty seven MAX production line. As in prior quarters, the commercial OEM guidance we're giving here today contains an appropriate level of risk around the MAX production build rate for the balance of the twenty five fiscal year. We remain optimistic that our operating units are well positioned to support the higher production rates as they occur. Now moving on to our commercial aftermarket business discussion. Total commercial aftermarket revenue increased by approximately 13% compared with the prior year period.

This quarter, all submarkets within commercial aftermarket experienced positive growth. The growth across the four submarkets was varied, but not significantly disconnected from what we had anticipated. Business jet, freight and interior were each stronger than the total commercial aftermarket 13% growth rate. Whereas the passenger submarket performed slightly below the overall commercial aftermarket rating growth. Within our passenger segment, operating units with higher engine content posted very solid growth well in excess of those with non engine content, and also considerably ahead of the 13% overall growth rate in our commercial aftermarket revenue.

For the full year, and as you saw in today's guidance, our outlook for commercial aftermarket growth of high single digit to low double digit growth is unchanged. We are watching the economic environment closely. Several airlines have announced potential capacity reductions for the twenty five calendar year, and in some instances pulled their financial guidance. At this time, despite these announcements and growing economic concerns, we are seeing no material weakness in our commercial aftermarket order book versus prior expectations. The bookings are coming in at about the pace we thought they'd be.

So we are therefore not changing our guidance. Additionally, a few points of note. Q2 bookings in commercial aftermarket were strong, running ahead of our expectations, significantly outpacing sales and supporting the full year growth out. Additionally, our q two point of sales data through our distribution partners, which can be a decent leading indicator was up significantly, well into the double digits on a percentage basis. As mentioned, we're monitoring our commercial aftermarket bookings rates closely.

And should these booking rates decline from what we are seeing at present as a result of economic softening and ensuing airline schedule reductions, we will revise our guidance accordingly on future earnings calls. Now turning to broader market dynamics and referencing the most recent IATA traffic data for March. Global revenue passenger miles have continued to surpass pre pandemic levels since February of twenty twenty four. RPKs in March were up 3.3 versus prior year. The growth rate improved slightly versus what was seen in February.

ASKs were up 5.3%, and the passenger load factor for March came in at about 81%. IATA currently expects traffic to reach 113% of 2019 levels in 2025, and to surpass prior year traffic by 8%. Time will tell if the ION forecast is too aggressive, as a few other forecasters are predicting a growth rate couple points lower. Regardless of the exact growth rate, we remain ready to meet the demand. Domestic travel also continues to surpass pre pandemic levels, though March posted marginal growth compared to the prior year.

And the most recently reported traffic data, global domestic air traffic was up about 1% compared to 2024, and up about 8% compared to 2019. Domestic air travel in March was impacted by declines in both The US and Australia. International traffic continues to trend upwards and has been above pre pandemic levels for the past several months. And the most recently reported data for March, international travel was up 4.9% compared to 2024, and about 3% above pre pandemic levels. In March, most international markets saw growth, though it was slower growth than prior months.

North America and The Middle East were the only regions that saw slightly lower international traffic than prior year. Now shifting to our defense market, which traditionally is at or below 35% of our total revenue. The defense market revenue, which includes both OEM and aftermarket revenues, grew by grew by approximately 9% compared with the prior year period. Q two defense revenue growth was well distributed across our businesses and customer base. Additionally, we saw similar rates of growth in both the OEM and aftermarket components of our total defense market, with OEM running slightly ahead of the aftermarket.

Defense bookings for the quarter and year to date significantly outpaced sales and support the full year guidance for defense revenue growth. Additionally, this quarter, we saw continued growth in US government defense spend outlays. As we've said many times before, defense sales and bookings can be lumpy. We know the bookings and sales will come, forecasting them with accuracy and precision, especially on a quarterly basis is quite difficult. As Kevin mentioned earlier, we are revising defense expectations upward and now expect revenue growth for this year to be in the high single digit to low double digit percentage range.

Lastly, I'd like to wrap up by expressing how pleased I am by our operational performance in the second quarter of fiscal twenty twenty five. Our operating unit teams did an exceptional job executing on our value drivers, and this generated the strong results delivered in the second quarter. Our management teams remain committed to our consistent operating strategy and servicing the growing demand for our products as we continue through the balance of the year. With that, I'd like to turn it over to our CFO, Sarah Winn.

Thanks, Mike, and good morning, everyone. I'll recap the financial highlights for the second quarter and then provide some more information on the current guidance. First, on organic growth and liquidity. In the second quarter, our organic growth rate was 7% driven by our commercial aftermarket and defense market channels as Kevin and Mike just discussed. On cash and liquidity, free cash flow, which we traditionally define as EBITDA less cash interest payments, CapEx, and cash taxes, was close to 340,000,000 for the quarter.

This is lower than our normal quarterly free cash flow conversion due to the timing of the interest and tax payments. We anticipated this dip. As you may recall, our first quarter free cash flow came in higher at over $800,000,000. For the full fiscal year, our free cash flow guidance is unchanged. We continue to expect to generate free cash flow of approximately $2,300,000,000 in fiscal twenty twenty five.

Below that free cash flow line, an investment in net working capital consumed about 190,000,000 for the quarter due to the higher AR for our second quarter shipments and higher inventory planning for the back half of the year. For the full year, we expect working capital to end roughly in line with historical levels as a percentage of sales. We ended the quarter with approximately $2,400,000,000 of cash on the balance sheet, and our net debt to EBITDA ratio was 5.1, down from 5.3 at the end of the last quarter. While we don't target a specific amount of cash that we like to have on hand, we have sufficient capital available through both cash on hand as well as incremental debt capacity to support all potential M and A activity in the pipeline. As a reminder, we are comfortable operating in the five to seven times net debt to EBITDA ratio range, And while we're currently sitting on the low end of this range, our go forward strategy of capital deployment has not changed.

Our EBITDA to interest expense coverage ratio ended the quarter at 3.4 times, which provides us with comfortable cushion versus our target range of two to three. Regarding our debt, our nearest term maturity is over two years out due November 2027, and we remain approximately 75% hedged on our total 25,000,000,000 gross debt balance through fiscal twenty twenty seven. This is achieved through a combination of fixed rate notes, interest rate caps, swaps, and collars. This provides us plenty of protection, at least in the immediate term. As Kevin mentioned, during the quarter, we opportunistically repurchased approximately 40,000 shares along with an additional hundred thousand shares during the April during the depressed stock price.

This totals $500,000,000 in deployed capital for repurchases on a year to date basis when combined with the first quarter repurchases. We continue to seek the best opportunities for providing value to our shareholders through our leverage strategy. On a go forward basis, we expect to continue both proactively and prudently managing our debt maturity stacks, which for us means pushing out any near term maturities well in advance of the final maturity date. With regards to guidance, as Kevin mentioned, we have maintained our prior financial guidance for fiscal twenty twenty five. A quick note on the evolving tariff environment.

As Kevin mentioned, TransDigm is largely a domestic manufacturer with limited exposure to low cost country sourcing. From an operations perspective, our 51 operating unit teams are driving their own actions to alleviate the majority of any negative headwinds through a combination of measures, including, but not limited to USMCA exemptions, cost reduction initiatives, and supply chain resourcing to name a few. Each operating unit developed a course of action in this regard that's specific to its own circumstances and situation. We believe we'll remain in a good position from an overall cash, liquidity and balance sheet standpoint with adequate flexibility to pursue M and A or continue to return cash to our shareholders via dividends or share repurchases. With that, I'll turn it back to the operator to kick off the Q and A.

Our first question comes from the line of Robert Staller from Vertical Research.

First of all, I'm not sure if you're going to be able to answer this, Kevin. There's been some talk in the press that you were interested in purchasing Jefferson, from Boeing and obviously didn't. So I was wondering if you could comment on that situation.

Yeah. We look at all aerospace targets that come along. And our approach is we look for aerospace businesses that have high aftermarket content and our proprietary products as we've always discussed. And the Jefferson business ticked those boxes without a doubt, a highly engineered product, very important to the aerospace world. So we were very serious in it.

But also in our approach is a very disciplined process. We don't and we can't overvalue and pay up. I don't want to comment too much on the process or what happens specifically with Jefferson or the bid. But we must stay disciplined in our approach to ensure we continue to drive the returns our shareholders have expected from us. And that means sometimes you have to say no to deals.

Yes. And then just quickly, on the tariff situation, you commented or Sarah commented about some of the mitigation actions you're taking, but you didn't mention price. Do you think you'll be in a situation where you won't need to pass on digital costs to customers?

Yes, I don't know if that is going to be the case. All value drivers are always in play. But we have a very small, insignificant really impact from the tariffs today. So we're not spending a lot of time wringing our hands over the impact trans done.

Thank you. One moment for our next question. Our next question comes from the line of Scott Meekus from Melius Research.

Good morning. Kevin, I wanted to ask on the capital deployment. So are we getting to the point with the amount of cash that this business is generating that share repos or special dividends are going to be a regular part of capital allocation going forward in addition to M and A?

Well, I think it's always been part of our capital allocation strategy. In my prepared comments, I went through our basic priorities. First, invest in our own businesses and make sure we're funding all of the productivity and new product projects that are available. Then looking at accretive M and A that meets our discipline criteria. And then, yeah, looking for opportunities to return through either special dividends or repurchases.

And we always look at all of those options when it's time to return capital. I look at it as it belongs to the shareholders, and it's our job to

you as quickly as possible. Recently, we saw a disruption in the share price, and we opportunistically capitalized on that to put some money to work on the shareholders' behalf. We still believe that special dividends and share repurchases are the right way to get capital back if there's not immediate and sizable M and A opportunities on the horizon or that we have more coverage than we need for what we see coming.

Okay. And then in the opening remarks, it was mentioned that your operating units with higher engine content are seeing better pull through in the commercial aftermarket. So I'm just curious, is there any meaningful margin differential in commercial aftermarket sales to the engine supply chain versus the airframe side?

No. No meaningful difference on engine versus non engine.

Thank you. One moment for our next question. Our next question comes from the line of Christine Lewag from Morgan Stanley.

Hey, Kevin, with EBITDA guidance unchanged for the full year, there's an implied step down in margin from 2Q for the second half of the year. Can you discuss what items could potentially pressure margins or how much conservatism is baked in?

There's definitely conservatism baked in because we don't how the world always unfolds and we don't want to get out over our skis too far. We're comfortable with what we've guided and the market segmentation that we're providing. So, yeah, hopefully it turns out to be conservative, but that's the way we tend to forecast and communicate what we're looking at in the future.

Great. And then, I think also I was remiss to start off with saying congratulations to both of you, Kevin and Mike. Kevin, we'll miss you. And Mike, welcome to your new role. Very excited for this change.

I guess, one of the questions I'm getting from investors is, as you transition to the new CEO role, Mike, are there priorities that are different than what Kevin had previously looked at? And how do we think about this transition?

Thanks Christine. First off, I don't think any meaningful changes are coming. Obviously Kevin and I have been on the same page for the last many years. I've worked for Kevin directly for seven or eight years. So I think we'll continue to run the same playbook here on the value drivers at TransDigm operationally, and then no material changes in terms of capital deployment action.

So I think it will be a lot of the same going forward that you've seen in the prior years from TransDigm.

Thank you. One moment for our next question. Our next question comes from the line of David Stroth from Barclays.

Hi, good morning and congratulations. This is Josh Korn on for David. Mentioned morning. Good morning. You mentioned the kind of the performance of the aftermarkets, submarkets in the quarter.

Could you give us an idea of where each of those four are on a volume basis relative to pre pandemic levels?

Sure, so all four performed well this quarter, as we said, experiencing significant growth and we're pretty across all four, for the most part above where we were pre pandemic. The one exception to that would be the interior side of the business, where it's not rebounded to peak volume levels that we're seeing pre COVID at the peak of the airline retrofit cycle, but all of the others are above where they were previously.

Okay, thanks. And then wanted to ask about defense where you raised the outlook. Is there any specific domain or area where you're seeing especially strong bookings that gave you confidence? Thanks.

No, I would say it's pretty uniform across all of our businesses. We've continued to see good strength on the defense side and it's evenly spread across both the OEM and the aftermarket. It's not been weighted to just one or the other. So it's been quite uniform and we remain optimistic on where that's heading going forward just based on what we've seen come in on the booking side.

Okay, thank you for taking the questions.

Thank you. One moment for our next question. Our next question comes from the line of Sheila Kahyaoglu from Jefferies.

Good morning, guys, and congrats, Kevin and Mike. Maybe just following up on the margins, if that's okay. Four percent margins in the first in Q2, just pretty strong, implies that the second half is around 52%, so 200 basis points down in the second half. But if we assume OE margins are around 20% EBITDA margins, that only makes up for about half of it. So just wondering like what you're factoring in to the conservativeness.

Is it tariffs? Is it are we really picking up? Is it aftermarket slowing? If you could comment on that.

Yeah, I think it's it's Mike, Sheila. I think as Kevin said earlier, it's mainly conservatism. There's no tariff headwind or anything to that sort. And then the other factor that plays in here is obviously just a bit of a mix shift in the second half versus the first half because you have the commercial OEM picking up, which as you pointed out comes in at lower margin. So we'll see a bit of that in the second half.

But hopefully, it proves conservative as things play out here over the next five months.

Great. And then maybe, on the aftermarket with 13% in in the second quarter, how do we think about the puts and takes within the four submarkets as we head into the second half of the year? What are you guys seeing with the booking momentum?

All four were up nicely, as I mentioned, across the four submarkets. The engine continues to be the strong outperformer, and we expect to see continued growth across the four in the back half as we sit here today and look out at what we're hearing from our customers on the commercial aftermarket side.

Thank you. One moment for our next question. Our next question comes from the line of Ken Herbert from RBC Capital Markets.

Yeah. Hi. Good morning and congratulations Kevin and Mike.

Maybe on the aftermarket, first question, was there any either in the calendar first quarter, your fiscal second quarter or in the month of April, did you see any pre buy activity with any airlines around the world just looking to get ahead of sort of this tariff risk perhaps and anything unusual that you may have seen through any of the channels in the year so far?

We did not see anything unusual, Ken. We don't get great insight into this, obviously, through the distributors and the airlines on why they're placing orders. But we didn't see any meaningful pre buy to get ahead of any tariffs or anything of that sort.

Okay, that's helpful. And obviously, you did a lot

around Jepson. And I'm just curious, Mike, maybe as you go forward, how do you think about maybe M and A in more software related businesses? Because this obviously would have been a material step change for you, but I think a nice sort of representation or logical step in the evolution of TransSign. But are you maybe more open now to doing less traditional acquisitions? Do you feel like you've got a better understanding of opportunities?

Maybe help us understand how you're thinking about sort of within aerospace broadening now the M and A approach after obviously going through process?

Well, don't wanna say too much to comment on other deals that were active in the market. But generally, as Kevin said, we look at all aerospace deals, whether it's hardware, software. And generally, what we're looking for is an EBITDA stream that has the attributes like our base components business. And if we find that on the software side, it's not necessarily something we would shy away from doing and venturing into. But we always look at, and as we've always done, we stress a five year model where we target a certain return.

And if we don't see a high likelihood of achieving that on certain opportunities, we'll always be disciplined and stand out. So, you know, we're not gonna launch down some path where it's we're certainly moving into software or anything of that sort. But as always, we'll always look at everything in the aerospace world, whether it's hardware or software and see if there's a path on a, you know, sticky enough earnings stream to generate a PE like return.

Thank you. One moment for our next question. Our next question comes from the line of Myles Walton from Wolfe Research.

TransDigm Group Q2 2025 Earnings Call Transcript | Fortune

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/2026/09/18/fortune-500-power-moves-september-12-18/

AI agents are going rogue. CIOs are racing to put guardrails around them

/2026/09/16/ai-agents-are-going-rogue-cios-are-racing-to-put-guardrails-around-them/

Fernanda Tronco

Mark Zuckerberg, chief executive officer of Meta Platforms Inc., during the Meta Connect event in Menlo Park, California, US, on Wednesday, Sept. 17, 2025.

TransDigm Group (TDG) Q2 2025 Earnings Call Transcript

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